Everything You Need to Know About Cash Memo | Meaning, Purpose, Format

All accounting transactions require documentation of the financial trail. We use cash memos to document cash transactions between buyers and sellers. It is used to keep track of cash sales for the company. Creating a duplicate copy of the document is necessary since the buyer keeps the original, and the seller needs a duplicate. In addition to tracking cash sales, reconciling taxes, analyzing inventory, and managing cash, it also helps sellers reconcile their taxes. In terms of cash equivalents, it is similar to a tax invoice.

The cash memo is a non-negotiable commercial document that confirms the purchase for both the seller and the buyer. Having an authorised signatory makes the cash memo an authentic document that facilitates dispute resolution.

Typically, cash memos are used in business to track and record all transactions in the book of accounts.

What is the Format of the Cash Memo?

Cash Memo should include information such as

  • Supplier’s name and address
  • Buyer’s name and address
  • Description and quantity of Goods or services
  • Cash Memo’s serial Number
  • Date of Cash Memo
  • Customer or Purchaser’s Order Number
  • Rate of Goods and Discount (if any)
  • Total Amount and tax Registration Number
  • Terms & Conditions of purchase
  • Signature of an authorised person

Why Issuing of Cash Memo is so Important?

Invoices are also used to track sales transactions, but cash memos differ in this regard. Invoices and cash memos are distinguished by the fact that cash memos record only cash sales, while invoices record only credit sales. Companies use cash memos to manage funds and sales.

The company keeps a duplicate of the cash memo for all cash sales. It is critical to record all cash transactions in a cash book in order to prevent any uncertainty regarding cash transactions. As soon as the buyer completes the transaction, the accountant will generate the payment voucher and file it for recording. In this way, the buyer avoids paying twice for the same invoice.

Keeping track of sales and helping the business determine the appropriate stock level is crucial to maintaining a suitable amount of stock. Among other things, it facilitates tax payments, reconciliation, analysis, and cash management.

Cash Memo Template

Advantages of Cash Memo

Although the cash memo is characterized by high risk and is not suitable for a big company, as the cash memo is manually prepared, it is relatively easy for employees to falsify the document's details, it has several important benefits, which is why it is desirable to use during business operations for small businesses. Let's discuss its advantages in detail together:

  • It is simple.

Cash memo is perfect for small companies that don't have complicated processes. It's an easy and practical use for both the buyer and the seller.

  • Legal Document.

Cash memos are crucial in dispute cases, as they can be used in place of invoices, which act as legal proof of a sale and purchase.

  • It benefits the company.

In cash memo transactions, the consumer immediately pays cash for the purchase, improving the company’s cash flow.

  • It helps cash reconciliation.

Accountants are able to reconcile their cash-on-hand accounts more easily.

  • It helps to avoid fraud.

This paper records the transaction as proof of sale and receipt. Taking away money from staff would result in an imbalance in day-to-day operations.

  • No additional debts.

Since cash memos cannot be used for credit transactions, the company will not incur additional debt.

  • Validated.

As it is always signed by a responsible person of the company, it is validated.

  • Separate credit and cash sales.

Using the reference number of the cash memo, the seller can distinguish between credit and cash sales.

Types of Cash Memo

Some of the basic cash memos which small businesses can use are as described below-

  • Standard Cash Memo.
  • Advanced/Specialised Cash Memo.
  • Partial Cash Memo.

Difference between Cash Memo and Tax Invoice

You can see specific differences between tax invoices and cash memos according to the table: